CONSTRUCTION RISK MANAGEMENT

Customized Construction Risk Management 

AEI’s team of engineers, architects, and construction professionals understand the complexities, difficulties, and risks associated with the construction phases of real estate development and renovation. Our national reach and regional focus allow us to provide our clients with insights on construction trends across the US, as well as on a regional and local basis.

Our Construction Risk Management services can be engaged at any point in the construction process and are customized for each project and client role. AEI’s team of experienced professionals will advise to help identify and manage risk on each project.

What is Construction Risk Management? 

Construction risk management is the comprehensive process of safeguarding your interests by evaluating and implementing processes that help reduce the impact of these risks. Whether it’s a safety, schedule, financial, climate, or litigation risk, the magnitude of their impact on your bottom-line depends on your level of preparation.

With thorough planning, a construction project risk assessment and management plan will allow project managers to identify, evaluate and alleviate risks as they arise. This requires a high level of collaboration and communication with all parties involved, working together to recognize and manage risks before they become a problem.

Construction Consulting Services 

Each construction project is unique. As such, our services are customized for each project and your respective position. AEI’s CRM services can be engaged at any point in the construction process to:
  • Assess how well due diligence, key documents, and contracts address potential risks
  • Identify current and potential areas of risk
  • Recommend solutions for managing and minimizing risk impacts
  • Capitalize on the benefits of early review and assessment, coupled with continuing project monitoring, to save time and money by identifying potential risks

To minimize the impact of potential risks, the best time to engage AEI’s Construction Management Services is during the underwriting of the construction loan, or the Pre-Construction Phase.

The Construction Risk Management Process

PRE-CONSTRUCTION

(Preparation of Construction Risk Assessments)

During the Pre-Construction phase, AEI prepares Construction Risk Assessments or Conceptual Budget Reviews to assist in evaluating the level of preparation and due diligence of the proposed construction or renovation project. Although our construction project risk assessment is not intended to remove risk from the project, we assist you in identifying areas of risk regarding finishing the project on time and within budget and offer recommendations for managing those risks.

AEI will review and assess the general completeness of construction drawings and specifications, permits, due-diligence reports/studies, regulatory board approvals, schedules and budgets that have been prepared for your project.

Our services can be provided while the process of due diligence and documentation is in process. We recommend a review of a “build-set” of documents that have completed permit review, value engineering and bidding, and are ready for construction. AEI will review and provide an opinion concerning the construction documents for overall comprehensiveness, coordination and for completion of permit review and approval by local authorities.

CONSTRUCTION

(On-going Construction Risk Management)

During the Construction Phase, AEI is tasked with preparing a Project Status Report (PSR). A PSR is prepared in conjunction with a draw request or payment application. A physical site visit is performed to independently verify the stage of completion of construction reported within the pay application during the draw request period.

As part of the PSR process, AEI will review the progress of construction and the payment application for uniformity and overall appropriateness. We will review the construction draw requests from the contractor and developer to ascertain if the work for which funds are requested have been completed. We will review conformance of the payment application with the provisions of the construction contract and plans and assess the overall completeness of the work. The level of project completion will be reviewed as well as the status and inventory of materials stored on and off site.

When change orders arise, we will disclose all pending and executed change orders and verifiable budget overruns. If necessary, AEI can review and comment on any shared information from municipality or other inspections, such as plans, permits and final inspection.

We will keep you up to date on the overall level of completion, report any potential changes to the expected completion and determine if the contractor is in conformance with the construction schedule. Finally, AEI will comment on whether pay application invoices are accompanied by necessary conditional and unconditional lien releases.

ESCROW DISBURSEMENT

(Repair Confirmation Report)

A Repair Confirmation Report is developed in conjunction with the borrower/owner’s request for escrow disbursement. A physical site inspection is performed to independently verify the completion of the recommended repairs and/or replacements identified within a previously submitted Property Condition Assessment (PCA) report.

A report summarizing site observations, interviews, a review of submitted documentation, and photos is prepared. AEI will provide recommendations on whether to release escrows. If necessary, recommendations for requested fund reduction will be made.

CLOSEOUT

(Construction Closeout Report)

Construction Closeout is the final phase of a construction project and is the process of making a project ready to turn over to the Owner.

Project closeout includes delivery of relevant documentation to the Owner such as Architect’s and Contactors’ Certificates-of-Compliance, Final Payment Application and Waivers, Temporary and Final Certificates of Occupancy, Architect’s Letter of Substantial Completion, Punch-List Completion and Sign-Off, Labor/Material Warranties and Guarantees, Surety Consent/Release, and As-Built Drawings.

Complete and thorough documentation protects you against potential risks from future disputes on scope, contracts, warranties or overall expectations.

Construction Risk Management FAQs

What is a risk management plan in construction?

Risk management, in general, is the method of identifying risks and evaluating the processes used to minimize their impact. In construction contract risk management, these methods involve identifying and mitigating instances of risk that could impact your construction. The cornerstone for this entire process is a risk management plan. This document lays out each specific risk and the way in which you plan to address it. An effective risk management plan includes detailed and step-by-step procedures that will help you control the risks, make decisions about them, and deal with issues if they arise.

Why is risk management important in construction?

With growing costs, complex projects, ever-evolving industry trends, and safety concerns, a risk management plan is more important than ever. Real estate construction—new developments and renovations—carry risk regardless of location or property type. Whether it’s financial, legal, environmental or otherwise, preparation is key. Your aim should always be to strive for the best outcome, but it’s to your advantage to also prepare for the worst.

What are the key risks in a construction project?
  • Safety: Even the most experienced crew is subject to the hazards and risks of a construction site. Workers are sometimes tasked with dangerous jobs or use machinery that can lead to accidents.
  • Financial: It is crucial to identify the factors that could impact your cash flow. Issues like unexpected cost increases, unforeseen dips in the economy, or even competition from other firms could prevent you from continuing construction. When you understand your financial risks – and how to mitigate them – you’re more likely to stay on budget.
  • Legal: Legal risks are equally important to manage. Consider everything from regulations and code violations to potential disputes with clients and vendors.
  • Project: Just as with any project, construction project risks need to be managed so you aren’t thrown off track. This could involve poor management of resources, getting behind schedule, not having paperwork in order, or miscommunication about deliverables.
  • Environmental: Floods, earthquakes, and other natural “acts of God” that damage a construction site or make it inaccessible can be financially devastating for a construction project.